The tough environment being faced by many companies in the green energy field was highlighted again today when a British solar power company reported a huge downturn in profits for the first half of the year.

A 40% slump in the global price of silicon wafers sent Oxford-based PV Crystalox Solar earnings spinning downwards to €12.4m (£10.2m) compared to €35.2m in the opening six months of 2009.

Shares in the company plunged 10% and spread further gloom in a renewable power sector still digesting a €270m first half loss from Vestas, the world's biggest wind turbine manufacturer, announced on Wednesday.

Iain Dorrity, the Crystalox chief executive, put a positive gloss on the figures saying the company delivered a "strong first half" with a major lift in the number of wafers being produced and shipped. This strong growth is expected to continue in the second half of 2010, he added.

"The group's strong customer relationships, continuing production cost efficiencies and strong balance sheet give the board confidence that the group will compete effectively," he said. The company produces wafers used in solar cells produced by major manufacturers such as Sharp of Japan.

Dorrity admitted that recent government cuts in subsidies for renewable energy projects in Germany and other European countries would represent a challenge for Crystalox at a time when silicon wafer prices have been driven down by new competition from China.

Germany remains the biggest market for solar module installations and Crystalox is currently ramping up production of polysilicon at its factory near Leipzig but also multicrystalline wafer output at its facility near Didcot in Britain. The company is working to cut its own cost levels to enable it to compete with its new Asian rivals and says the polysilicon – used in the manufacture of its own wafers – will help it do this.

The Crystalox annual report suggests out that although silicon wafer prices have stabilised after the 40% fall since last year, this may not continue.

"Further capacity is still coming on stream and it could be several years before the supply/demand capacity comes into balance," the report warns.

Dorrity points out that falling prices are also good for building growth in a wider solar power market which is struggling to become competitive with more traditional power sources. The cuts in feed-in tariff levels in Germany – 9% in January followed by a further 15% by September – are themselves a reaction to lower solar costs, he argues.

Britain has just introduced its own feed-in tariff and Crystalox is expecting this will indirectly increase demand for its products.

The company has already lost 25% of its value this year and Panmure Gordon clean tech analyst Mark Davis said the market was worrying about the effect on pricing of major capacity coming online in 2011 and demand declining although he felt most of the fears were overblown.

"This is the nature of the industry and I think this uncertainty will continue until the first-quarter of next year or until the end of this year when people get more clarity on pricing and contracts."